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Neutral Fed crushes USD and puts trading into risk-on mode heading into a busy news day

The biggest difference was that the Fed took a more downbeat outlook to inflation ignoring recent increases to the PCE rate it uses and expressing concern about energy prices even though WTI crude oil has gained more than 20% since the Fed’s last meeting. There was only one hawkish dissenter, I had thought there would be at least two votes for an increase this month.

The Fed’s dot plot showed the main cluster of members forecasting 2 rate hikes this year with 3 the second most popular choice. With 4 hikes this year now clearly off the table, the pressure on the Fed to act in April has subsided with June the most likely window for the next hike unless inflation gets away on them.  

Overall the street has treated this as a neutral hold rather than a hawkish hold. Confirmation that 2 maybe 3 rate hikes this year are more likely than 4+ increases USD had priced in sent USD spiralling downward  and ignited rallies in resource currencies with CAD, NZD, AUD, SEK and NOK all spiking up over 1%. A goldilocks economic outlook (not too fast which would force the Fed to tighten and not too slow that would impact corporate earnings prospects) has also been boosting share prices.

Toward the end of her press conference Fed Chair Yellen indicated April is a live meeting but this appears to have been more to try and slow the USD collapse unfolding and may be more of a speed bump than a show stopper.  She also indicated the Fed is not seriously considering negative interest rates and overall tried to take a neutral course slowing the pace of rate hikes while talking positively about the underlying economy to avoid undermining confidence.

The Fed decision appears to have sparked a wave of risk-on trading, with gains in US stocks and commodities sending positive momentum toward today’s Asia Pacific trading. Gains in resource currencies, copper and crude oil may boost sentiment toward miners and energy producers in particular.  Even before the Fed decision, crude oil has been soaring with its correction over and traders responding favourably to indications that at least 15 countries may attend a meeting to discuss a production freeze in April and could move ahead with or without Iran. A smaller than expected increase in DOE inventories, confirming the API report also has had a positive impact on oil trading today.  

While the FOMC reaction may continue to play out over the next 12 to 24 hours, there is a ton of other news on the way that could potentially move markets. New Zealand GDP and Australia employment are the headliners during today’s Asia Pacific trading day. In Europe, the focus is on central banks with decisions due from the Swiss National Bank, Norges Bank and the Bank of England. Norges Bank is expected to cut its benchmark rate 0.25% to 0.50% which would bring it in line with Canada in a bid to mitigate the impact of lower oil prices on its economy. The other two are expected to stay the course. These decisions could impact trading in CHF, NOK and GBP around the announcements.  

Corporate News

There have been no major corporate announcements after the US close today

Economic News

Significant announcements released overnight include:

US FOMC interest rate        0.25%-0.50% no change as expected
US FOMC vote            1 hawkish dissenter, George voted for a 0.25% increase

US FOMC statement         inflation running soft which it blamed on energy prices

US FOMC member projections

GDP                                       cut to 2.2% from 2.4%
Unemployment rate      steady at 4.7%
PCE inflation                       cut to 1.2% from 1.6
    Core PCE inflation            steady at 1.6%

Fed Funds rate                  cut to 0.9% from 1.4%

Dot Plot                       1 hike                    1
                                                2 hikes                  9
                                                3 hikes                  3
                                                4 hikes                  4

US consumer prices        1.0% vs street 0.9% vs previous 1 4%
US core CPI            2.3% vs street 2.2%
US real avg weekly earnings    0.6% vs previous 1.2%

US housing starts        1,178K vs street 1,150K
US building permits        1,167K vs street 1,200K

US industrial production        (0.5%) vs street (0.3%) vs previous 0.9%
US manufacturing production    0.2% vs street 0.1% vs previous 0.5%

US DOE crude oil inventories    1.3 mmbbls vs street 3.2 mmbbls
US DOE gasoline inventories    (0.7 mmbbls) vs street (2.2 mmbbls)

Canada manufacturing sales    2.2% vs street 0.5% vs previous 1.2%

UK jobless claims change    (18K) vs street (9K)
UK 3M employment change    116K vs street 144K and previous 205K
UK unemployment rate        5.1% as expected
UK average weekly earnings    2.1% vs street 2.0%

Upcoming significant economic announcements include:

(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)  

8:45 am AEDT        NZ GDP            street 2.1% vs previous 2.3%
10:50 am AEDT        Japan trade balance        street ¥400B

11:30 am AEDT        Australia employment change    street 13K vs previous (8K)
11:30 am AEDT        Australia full time jobs        previous (40K)
11:30 am AEDT        Australia part time jobs        previous 32K
11:30 am AEDT        Australia unemployment rate    street 6.0%

8:30 am GMT        Sweden unemployment rate    street 7.4%

8:30 am GMT        SNB 3M Libor lower bound     (1.25%) no change expected
8:30 am GMT        SNB 3M Libor upper bound    (0.25%) no change expected
8:30 am GMT        SNB deposit rate        (0.75%) no change expected

9:00 am GMT         Norges Bank interest rate    0.25% cut to 0.50% expected

10:00 am GMT        Eurozone consumer prices    street (0.2%)
10:00 am GMT        Eurozone core CPI        street 0.7%

10:00 am GMT        Greece unemployment rate    street 24.6%

12:30 pm GMT        Bank of England decision    0.50% and £375B no change expected

8:30 am EDT        US jobless claims        street 268K
8:30 am EDT        US Philadelphia Fed        street (1.5)

10:00 am EDT        US leading index        street 0.2%
10:30 am EDT        US natural gas             street (5 BCF)

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